MAHESH BHARANY,NEW DELHI vs. ACIT, NEW DELHI

O R D E R PER PRASHANT MAHARISHI, A. M.

are independent and without prejudice to one another.”

3. Mr Ramji Bharany has raised the following grounds of appeal in Assessment Year 2011-12:- “1. That the CIT (Appeals) has erred on facts and under the law in holding that the rights acquired by the assessee in purchase of flat, allotted by the builder, is not a capital asset and accordingly the disallowance of capital loss incurred by the assessee on account of termination of the agreement to purchase the flat is arbitrary, unjust and bad in law. 2) That the CIT (Appeals) has erred on facts and under the law in holding that the termination of the agreement of right to purchase the flat is not a transfer in terms of Section 2(47) of the Income-tax Act, 1961 and accordingly the disallowance of capital loss incurred by the assessee on account of such alleged termination of the agreement is bad in law. 3) That the above grounds of appeal are independent and without prejudice to one another.”

4. First we deal with the facts in in case of Mr Mahesh Bharany. Assessee is an individual having income from house property, profits and gains from business or profession and other sources. He filed his return of income on 27/09/2011 declaring total income of Rs. 8319825/-. Assessment u/s 143 (3) of the Income Tax Act was passed by the assistant Commissioner of Income Tax, Circle-32(1), New Delhi on 06/03/2014 determining total income of Rs. 95322333/-.

5. The only issue involved in this appeal is claim of capital loss disallowed by the learned assessing officer and confirmed by the learned CIT(A) therefore assessee is in appeal.

6. Brief facts of the case shows that assessee booked jointly in unit No. 10B Tower 2, Hibiscus, Sector 50, Gurgaon on 10/07/2006 by paying Rs. 1,000,000/- and on 21/11/2006 Rs. 5,000,000/-. Thus, assessee paid in 2006 for booking of the flat a sum of Rs. 1,500,000/-. On 02/07/2010, assessee cancelled its booking voluntarily. The builder/society refunded assessee Rs. 15,00,000/-. The assessee has shown capital loss stating that sum of Rs. 1,500,000/- for acquiring a capital asset paid in 2006 got extinguished/transferred in 2010 by surrender of right to acquire a capital asset resulted in capital loss due to the indexation of the cost of acquisition incurred in 2006. Therefore, assessee has shown capital loss of Rs. 554914/–.

7. The claim of the assessee before the learned assessing officer was rejected because according to AO the above transaction of the assessee is more in the nature of refund where the booking amount given by the assessee is returned back to him. It was further held that a right to purchase the property is not a right over immovable property. It is a contractual right, where a person receives consideration for giving up such right, the question arises, whether there is a transfer of property in the sense understood in the definition of capital asset u/s 2 (14) of the income tax act and whether the relinquishment would be transfer within the meaning of section 2 (47) of the act. The AO therefore stated that there are conflicting decision in this matter. The Hon’ble Bombay High Court has taken a consistent view that a right under the agreement of sale is also a capital asset in any amount received for breach of such agreement would be liable for capital gain as held in CIT vs Vijay Flexible Containers following CIT vs Tata services limited. In fact, the same view was also taken in CIT vs Sterling Investment Corp Ltd. A similar view was taken by the Hon’ble Madras High Court in Sreenath AR Vs. ACIT. According to the learned Assessing Officer such receipt could be in the nature of damages, where it is decreed by a court or it is payable in a compromise in which case, there is no liability for capital gain as held by Kirk of the High Court in CIT vs Dhanraj Duggar. It was held in this case, that right in an agreement is not property in itself, but only contractual right and that at any rate, there is no cost, so that the amounts receivable should not be taxable on the light of the decision in Srinivasa Shetty (BC). Similar view was taken in another case by the Hon’ble Calcutta High Court in CIT vs Asoka marketing Ltd. Such amount was held to be in the nature of damages not assessable to tax even in the decision of the Hon’ble Gujarat High Court in CIT vs Hiralal Manilal Mody. Therefore, the learned Assessing Officer disallowed the capital loss of Rs. 554914/- as claimed by the assessee and added back to the income of the assessee under the head income from capital gain.

8. On appeal before the learned CIT(A), the assessee referred to letter dated 26/05/2010 submitted before the learned Assessing Officer by assessee to Northstar Apartments Private Limited wherein unit No. 106 and Tower 2 in the Hibiscus Sector 50 Gurgaon which was booked by the assessee earlier got cancelled and assessee along with the other joint owner was paid Rs. 3,000,000/-. Assessee also referred to letter dated 02/07/2010 received from Northstar Apartments Private Limited accepting the above proposal and paying back assessee the sum of Rs. 3,000,000 (assessee share being Rs. 15,00,000) the assessee also supported its claim by the decision of Hon’ble jurisdictional High Court in JK Kashyap 302 ITR 255 (Delhi) and the decision of the Hon’ble Supreme Court in case of grace Collis 248 ITR 323 along with other decisions before the learned Assessing Officer. The learned CIT(A) also asked for a Performa copy of the agreement which was filed. He dealt with the various clauses of such agreement. The learned CIT(A) dealt with the whole issue considering the agreement entered into by the assessee with the seller. The ld CIT(A) further stated in para No. 6.4.1 that in case of default of payment as per schedule the developer has right to terminate the agreement and forfeit the earnest money including charging of interest. The developer has also right to waive its right of termination and enforce all the payments and seek the specific performance of this agreement. He also considered the several other clauses of the agreement. He held that mere refund of the earnest money in case of defaulting buyer did not give his any right in para No. 6.4.14 he has dealt with the decisions to hold against the assessee and also the decisions cited by the assessee and held that they do not apply to the facts of the case.

9. Therefore, aggrieved with the above order the assessee is in appeal before us. The learned authorised representative submitted the facts of the case. He submitted the copy of the letter dated 25/09/2006 titled as allotment letter. He submitted that according to that letter the assessee along with the other person having acquired a right to obtain the conveyance of unit No. 10B having super area of 3350 sq ft in Tower No. 2 of the project Hibiscus at Sector 50, Gurgaon, Haryana along with one car parking space at the net rate of 4650 sq. ft and preferential location charges of Rs. 75/ er square feet for Rs. 15828750/- to be payable as per the payment plan attached. He further referred to the various terms and conditions for allotment attached with above agreement. He submitted that according to this, assessee deposited Rs. 1,500,000/- in financial year 2006 with the builder. Subsequently on 02/07/2010 assessee submitted a termination letter and refund payment of Rs. 1,500,000/- by the Northstar Apartments Private Limited to the assessee in terms of request of the assessee for cancellation dated 26/05/2010. He therefore submitted that assessee acquired a capital asset as defined u/s 2 (14) of the act for right to obtain conveyance in his favour of the above property by allotment letter dated 25/09/2006. Such right was transferred/relinquished/extinguished in 2010. Therefore, there is a transfer of a capital asset, which resulted into capital gain or loss to be computed in accordance with section 48 of the income tax act. On such computation the cost of acquisition incurred by the assessee is required to be indexed. The assessee considered the cancellation amount received from the builder is a consideration for the transfer of capital asset, and claimed the indexed cost of acquisition being the amount of money paid. He thus submitted that that the claim of the assessee was found to be genuine however it was found that there is no transfer of capital asset and no capital gain/loss has been earned by the assessee. He submitted that the learned assessing officer and the learned CIT(A) considered that assessee has transferred a capital asset in the form of immovable property. He submitted that such is not the case but it is a right to acquire any immovable property is also a right, capital asset u/s 2 (14) of the act has been lost sight of by the lower authorities. He therefore submitted that assessee should be entitled to the above capital loss. The learned authorised representative further submitted that the issue squarely covered in favour of assessee by the decision of the Hon’ble Delhi High Court in case of Gulshan Malik vs Commissioner of income tax 43 taxmann.com 200.